Electoral Bonds in India: Transparency Tool or Democratic Grey Zone?
"In a democracy, transparency is the currency of trust."
India, the world’s largest democracy, continues to grapple with a central question: how can political funding be made transparent, accountable, and corruption-free? In 2018, the Government of India introduced Electoral Bonds with the promise of cleansing the murky waters of political donations. However, in the years since, electoral bonds have become a lightning rod for controversy, judicial intervention, and public debate.
This blog explores the origin, working mechanism, legal framework, advantages, criticisms, recent revelations, global comparison, technical nuances, and the future of electoral bonds — a topic that sits at the intersection of politics, money, and citizen trust.
🗳️ What are Electoral Bonds?
Electoral bonds are bearer financial instruments akin to promissory notes that can be purchased by Indian citizens or domestic companies to make donations to political parties anonymously.
- Introduced via the Finance Act of 2017, bypassing a detailed debate by classifying the changes as a money bill, which limited scrutiny by the Rajya Sabha.
- Came into effect from January 2, 2018.
- Can be purchased in fixed denominations — ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, and ₹1 crore — from designated SBI branches.
- Valid for 15 days, during which they can be encashed only by eligible political parties.
- Donations through bonds are not counted as foreign contributions due to the 2016 amendment to the FCRA, allowing foreign-origin Indian subsidiaries to donate without disclosure.
🏦 How Electoral Bonds Work
- A donor purchases a bond from the SBI, providing KYC-compliant documentation.
- The SBI encodes data, but the information is not revealed to the public or the recipient party.
- The political party deposits the bond in a designated bank account.
- After 15 days, the bond becomes invalid.
A key point of concern is that while SBI is technically required to maintain confidentiality, RTI disclosures and investigative journalism have revealed the possibility of tracing back donors through transaction timestamps and branch details, raising concerns of potential misuse.
📜 Legal Amendments That Enabled Electoral Bonds
To facilitate the scheme, the government introduced sweeping amendments across multiple laws, often bypassing open legislative debate:
| Act Amended | Change Made |
|---|---|
| RBI Act | Empowered SBI to issue electoral bonds under the guidance of the central government |
| Representation of the People Act | Removed obligation of political parties to report names of donors using electoral bonds |
| Companies Act | Removed the 7.5% profit cap on political donations, and disclosure of recipient parties |
| Income Tax Act | Exempted both donor and recipient from paying tax on donations via electoral bonds |
| Foreign Contribution Regulation Act (FCRA) | Allowed Indian subsidiaries of foreign companies to donate, further raising concerns about foreign influence |
📈 Data and Trends (2018–2024)
- As of March 2024, over ₹16,518 crore worth of electoral bonds have been sold.
- Of this, more than 90% has been cornered by just five political parties, with the BJP alone receiving over ₹6,060 crore.
Donations typically surge before key state and national elections. For example:
- ₹1,213 crore in April 2019 (Lok Sabha election period)
- ₹1,370 crore in March 2021 (West Bengal, Assam elections)
- ₹1,785 crore in November 2023 (ahead of 2024 General Elections)
🏛️ Political Party Share:
- Bharatiya Janata Party (BJP): ~37–40% annually
- Indian National Congress (INC): ~11–14%
- Trinamool Congress (TMC), BRS, DMK, and regional parties: small but growing shares
✅ Arguments in Favour of Electoral Bonds
- Cleaner Transactions: Reduced dependence on unaccounted cash donations.
- Banking Channel Traceability: Potential for audit if authorities seek donor info under due legal process.
- Donor Protection: Businesses or individuals can donate without fear of political reprisal.
- Tax Benefits: Incentivizes formal and institutional donations.
- Ease of Use: Facilitates national-level donations through any SBI branch.
❌ Criticism and Controversies
- Anonymity vs Transparency: The lack of public disclosure enables opaque influence.
- Corporate Capture: Unlimited anonymous corporate donations raise risks of quid pro quo deals.
- Electoral Bias: Disproportionate benefit to ruling party fuels allegations of misuse.
- Non-Disclosure by Political Parties: Undermines the public’s right to know.
- Foreign Interference: FCRA changes allow indirect foreign funding via Indian subsidiaries.
- Limited Access: Regional and smaller parties without national reach struggle to attract bonds.
- Judicial Evasion: The scheme remained operational for six years despite multiple legal challenges, until SC intervention in 2024.
⚖️ Supreme Court Ruling (2024)
In February 2024, a Constitution Bench of the Supreme Court of India held electoral bonds to be unconstitutional:
- Struck down key provisions enabling donor anonymity.
- Ruled that transparency in political funding is part of the voter’s fundamental right under Article 19(1)(a).
Ordered the State Bank of India (SBI) to disclose:
- Bond serial numbers
- Dates of purchase and encashment
- Names of donors and recipient political parties
SBI data revealed that a substantial portion of donations came from:
- Shell companies with no operational revenue
- Firms under investigation by agencies like ED and CBI
- Entities receiving large government contracts after donations
🕵️ Key Revelations Post-Judgment
- At least 500 crore worth of bonds purchased by companies within days of facing regulatory scrutiny.
- Multiple firms donated and subsequently received government tenders or project clearances.
- Several donations were split across different bond denominations to avoid detection.
- Top 10 corporate donors accounted for more than 40% of all bond contributions.
🌐 Global Comparison
| Country | Transparency Norms |
|---|---|
| USA | PACs, Super PACs, and public disclosure of donations over $200 |
| UK | Mandatory disclosure for donations above £500; public database |
| Canada | Disclosure + strict donation limits + public matching funds for parties |
| Germany | State financing + capped private donations; public audit of party accounts |
| India (2018–2024) | Anonymous unlimited donations via SBI; post-2024 struck down by SC |
📉 Impact on Democracy and Governance
- Unequal Electoral Playing Field: Ruling parties benefit from information asymmetry.
- Reduced Public Confidence: Distrust in electoral fairness and institutional integrity.
- Policy Capture: Potential for undue corporate influence in policymaking.
- Suppression of Opposition: Financial chokehold on smaller and dissenting parties.
- Weaponization of Agencies: Timing of donations suggests possible exchange for relief in probes.
💡 The Way Forward
- Transparent Digital Platforms: Real-time public disclosure of donors and recipients.
- Election Commission Autonomy: Strengthen EC’s role as a neutral watchdog.
- Cap on Corporate Donations: Reinstate profit-based limits and mandate board approval.
- Political Party Audits: Annual financial disclosures reviewed by independent bodies.
- Public Funding Models: Explore partial state funding of elections based on performance.
- RTI Applicability: Bring political parties under the purview of the Right to Information Act.
🏁 Conclusion: Democracy Needs Light, Not Shadows
“Democracy dies in darkness, and it revives in transparency.”
The idea behind electoral bonds may have been to bring order to political donations. Yet in execution, it became a paradox — legalized secrecy in the name of transparency. The Supreme Court verdict is a step toward restoring electoral integrity. What remains is the political will to craft a system where citizens, not corporates, are the true stakeholders of democracy.
